Ei ole eesti keeles kättesaadav
Davide Porcellacchia
Research
- Division
-
Monetary Policy Research
- Current Position
-
Senior Economist
- Fields of interest
-
Macroeconomics and Monetary Economics,Financial Economics
- Education
- 2013-2018
PhD in Economics, London School of Economics, London, UK
- 2011-2012
MSc in Economics, London School of Economics, London, UK
- 2008-2011
BSc in Economics and Management, Bocconi University, Milan, Italy
- Professional experience
- 2015
Summer intern - International Monetary Fund
- 2013-2015
Consultant - J.C. Flowers and Co.
- 14 October 2021
- RESEARCH BULLETIN - No. 88Details
- Abstract
- Policy rates in advanced economies are unusually low. What effect does this have on bank stability? I identify two competing effects. On the one hand, low rates harm bank profits by squeezing interest margins. On the other hand, they boost the value of long-term assets held by banks. Using a standard banking model, I determine the policy rate level at which these two forces cancel each other out, i.e. the tipping point. Past this tipping point, the net effect of low rates on bank capital is negative. Applying the model to the US economy, I quantify the tipping point in August 2007 as a policy rate of 0.55%.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 21 July 2020
- WORKING PAPER SERIES - No. 2447Details
- Abstract
- To study the effect on financial stability of persistent changes in the interest rate, this paper develops a recursive model of liquidity creation based on Diamond and Dybvig (1983). The model features two stable balanced growth paths: a good one with a healthy banking system and a bad one with a failed banking system. The paper’s main result is that a critical interest-rate level exists, below which a financial crisis takes place and the economy transitions from the good to the bad BGP. At this tipping point for the economy, banks’ franchise value of deposits goes down, since their net interest margins are compressed. This leads to a fall in bank equity, which gives depositors an incentive to run. The tipping point is not necessarily negative or zero. It is an increasing function of the persistence of the change in the interest rate. Since a persistent fall in the interest rate compresses the net interest margin further in the future, it damages the franchise value of deposits more for any given interest-rate cut.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Research Task Force (RTF)